Report LGEF Formula Allocation

The Local Government Equalisation Fund (LGEF) was established in 2014 through the Local Government (Amendment) Act No. 12 of 2014. The purpose of the Fund is to subsidise Local Authorities’ (LAs) recurrent and capital expenditures. The LGEF became operational in 2015 and was included in the revised Constitution of Zambia (Article 163) in 2016.

The Government of the Republic of Zambia (GRZ), through the Decentralisation Policy Implementation Committee (DPIC), has decided to initiate a revision of the Local Government Equalisation Fund (LGEF) to ensure horizontal and vertical equity.

The overall objective of the assignment is to come up with a proposal for a revised LGEF formula, which allows for a greater balance across Local Authorities by taking into account differences inservice delivery needs, and the fiscal and economic ability to meet those needs. Specifically, to include recommendations on:

1 - How to split the current LGEF into two grants:

      a - One covering recurrent/operational expenditure, and

      b - One covering capital investment costs.

3 - The future allocation criteria (number and nature) and relative weights of each of these.

4 - How to include a performance incentive element in the design.

This report presents analyses, conclusions and recommendations on these issues, with details ofLA fiscal statistics in annex 1 and 2, and a grant simulation model as annex 3. ‍